INDUSTRY REPORT: Energy Security

Latin American countries could benefit from a more integrated energy market. Has the time come for them to forget about nationalism?

Oil rig drilling in Brazil • Photo: © iStockPhoto.com/celsodinz

The nations of Latin America and the Caribbean possess one of the world’s largest reserves of petroleum and natural gas, as well as an abundant supply of hydroelectric energy. In fact, the western hemisphere has plentiful sources of both conventional and renewable energy. Nearly a third of the world’s proven petroleum reserves are in the Americas, according to statistical reports from British Petroleum (BP). Latin America has 9.7 percent of world reserves and produces 13.8 percent of the world’s petroleum, BP reports.

In spite of the cooperation on energy issues among some countries within the region, especially on electrical energy interconnections, relations among these countries are becoming ever more tainted by ideology as a result of growing tensions among the political regimes, and that’s having an adverse effect on the possibility of developing more energy integration. The result is that the reciprocal needs of producing countries and importing countries, which could be a force for greater cooperation and regional integration, are in practice turning into measures that fan nationalistic flames and cause discord and energy insecurity.

According to data from the Inter-American Development Bank (IDB), demand for energy in Latin America will grow by 75 percent between now and 2030, and to meet that demand generating capacity will have to increase by 145 percent during the same period. That goal would be more easily met if the all the regional players worked together.

This scenario becomes even more complicated when one takes into account that the region uses its energy inefficiently: Latin American energy demand is very high relative to the rate of economic growth. European industry consumes half as much energy as Latin America per unit of production, according to a recent study from the Woodrow Wilson International Center for Scholars.

The response of most of the region’s countries has been to try to become independent in energy – except for the nations of the Caribbean, which continue to be net importers of energy. In any case, energy independence is a necessary, but not sufficient condition, for achieving energy security. That was demonstrated in Japan after the disastrous tsunami of 2011, when that country proved capable of quickly replacing the lost nuclear energy with imported gas. Energy security is easier to achieve by being part of an integrated system than by achieving self-sufficiency at the national level. For that reason, energy cooperation needs to become the roadmap for the countries of Latin America and the Caribbean to follow.

Executive secretary of Brazil’s Ministry of Mines and Energy (MME), Marcio Zimmermann (R) and president of the Energy Research Company (EPE), Mauricio Tolmasquim speak during a press conference in Brasilia February 4, 2014. • Photo: Ueslei Marcelino/Reuters/Newscom

Brazil: Blame it on the rain

 

On February 4th, a countrywide blackout hit six million people in 11 of Brazil’s 27 states as a result of a failed transmission line. While the cause of the outage was unclear, what it represents is not: Brazil is facing a major energy crisis.

Approximately 70 percent of Brazil´s energy comes from hydro. The country suffered through its driest January in almost 60 years and the likelihood for sufficient rainfall for the rest of 2014 is small, leading experts to predict that reservoir levels could hit rationing levels by 2015.

The Brazilian government has few options beyond passing increased costs onto consumers. Exploding budgets and looming credit downgrades makes continued subsidies to distributors difficult, and massive social unrest during an election and World Cup year, likely rules out any rationing. President Rousseff certainly understands the dangers of the latter. The 2001 rationing program crushed the stock market, caused massive defaults in the utility sector and helped push her predecessor, then in the opposition, into the presidency.

Energy Diplomacy

The Obama Administration has made energy policy a defining pillar of its Latin American policy. At the Summit of the Americas last year, the U.S. announced, in cooperation with Colombia, the “Connecting the Americas 2022” initiative, which aims to ensure universal access to electricity to people in the region by 2022.

Energy resources have historically been a major flashpoint for social unrest in the region, whether between European ancestors and poor, indigenous populations, or between Latin American nations and the United States, which have kindled energy nationalisms like those in Venezuela, Bolivia and Ecuador.

There are a number of projects currently underway in the region. The Central American Integrated System Project (or Siepac in Spanish), the Andean Electrical Interconnection System (Sinea) and the Garabí Project connecting Argentina and Brazil. While there is still little connection between these systems (and relatively few major regional energy policies), Obama’s energy diplomacy will press the region’s nations on finding common ground that could open the door for greater connectivity, under the aegis of the U.S.

Álvaro Moreno reported from Miami. David Seconi from Bogotá.


 

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